Guide On Accounting Depreciation On Motor Vehicles and Yachts

The vast majority of motor vehicles go through depreciation right after it is taken off the dealership lot. This is because, with the ...


The vast majority of motor vehicles go through depreciation right after it is taken off the dealership lot. This is because, with the use of motor vehicles, its inherent value drops in conjunction. Furthermore, dealerships sell vehicles at a price above the second-hand market value. Hence, it's important that any owner of motor vehicles take into account depreciation. This article will serve as a guide on accounting depreciation for motor vehicles.

Vehicles go through depreciation through a number of different factors. As mentioned, vehicles, especially rare ones, may in fact, appreciate in value in the future. However, this is usually under the assumption that it isn't used and that it's kept in new condition. Actually using a vehicle usually voids these two conditions, as any driver knows, the more you drive a motor vehicle, the worse it looks and the faultier it becomes.

Steps involved in the Depreciation Calculation

Accounting depreciation should first involve looking at the total mileage done by the motor vehicle. The general rule of thumb is that the less mileage on a vehicle, the less it has depreciated. This mileage should be compared to the original mileage that was on the vehicle. Thus, if it is a new vehicle, any mileage after zero will make an impact to the depreciation of the vehicle. In general, the affect mileage has on depreciation is exponential. This means that the first 10000 miles will have less of a depreciatory impact that than last 10000 miles of a vehicle that has already done 100000 miles.

The condition of the body of the motor vehicle contributes significantly to its depreciatory impact. The first rule of thumb in regards to this is the fact that if a motor vehicle has been involved in a crash before, it immediately depreciates tremendously. This is because a crash usually means repairs have to be done, meaning that the original body of the car has been altered and has been fixed using some external measures. This means that the car is no longer in its original condition, no matter how well it has been repaired. Thus, anyone who wishes to preserve the value of their vehicles to the greatest extent possible should do everything possible to avoid crashes.


In terms of regular weathering of the body of the motor vehicle, the depreciatory effect is less than that of mileage. This is because motor vehicles that have been regularly maintained and looked after can still have a very solid and like-new body even after moderate mileage. This means that the depreciation is minimal compared to the potential depreciation that has been caused through mileage. Thus, simply taking care of motor vehicles that you may use and ensuring it looks good should be enough to slow down depreciation. On the contrary, when we track the depreciation of a pleasure yacht or sailing boat, the higher quality boats lose less value over time.

Conclusion

Overall, accounting depreciation for vehicles is very important for any owner of vehicles. There are various reasons to this. A business owner will add depreciation as an expense in his tax returns. This is because vehicles can cost a lot of money and anyone who wants to keep tab of their overall financial position should definitely do everything possible to ensure they account for the potential depreciation their cars have gone through.

About the author:

Elena works as a finance manager for csbgroup in Malta. She specializes in motor vehicle and pleasure yacht insurance. On her free time, Elena enjoys going to the gym, cooking and reading fiction books.

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Vyas Infotech: Guide On Accounting Depreciation On Motor Vehicles and Yachts
Guide On Accounting Depreciation On Motor Vehicles and Yachts
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